As the consideration of the Finance Bill 2025 approaches homestretch, the Departmental Committee on Finance and National Planning has begun engaging various government agencies over a number of issues, primary among them those that emerged during the stakeholder engagements and public participation exercises on the Bill. 

 This critical step follows the conclusion of public participation on both the Finance Bill 2025 and the Virtual Asset Service Providers Bill.

The Finance Bill 2025 proposes amendments to various tax and duty laws, while the Virtual Asset Service Providers Bill aims to regulate service providers in the virtual asset sector and mitigate associated risks.

These engagements with government agencies are crucial for two main reasons. They allow Committee Members to understand the agencies' concerns regarding how the Bills' provisions might impact their respective sectors if enacted as currently drafted.

They also provide a platform for lawmakers to question the rationale behind certain provisions that stakeholders and the public raised concerns about during the public participation phase, which concluded on Friday with forums in Mombasa, Kwale and Kilifi Counties. 

The Committee has already met with the State Departments for Tourism, Agriculture, and Sports, as well as the Kenya Revenue Authority (KRA), the implementing agency for the Finance Bill.

During the meeting held in Mombasa County, the Principal Secretary for the State Department for Tourism, Mr. John Ololtuaa, urged the Committee to retain the existing VAT exemptions for the tourism sector, as stipulated in the VAT Act Cap 476. He also sought additional fiscal incentives for green and sustainable tourism investments.

PS Ololtuaa emphasized that retaining these measures would not only strengthen Kenya’s brand as a world-class tourism destination, but would also ensure that visitors enjoy high standards that encourage positive reviews and repeat travel.

“This measure will ensure the sustained growth of a resilient, competitive, and inclusive tourism sector in Kenya”, he submitted to the Committee.
The Finance Bill 2025 proposes removing two significant exemptions that have historically benefited the tourism sector under the VAT Act Cap 476.

Meanwhile, Dr. Paul Ronoh, Principal Secretary for the State Department for Agriculture, highlighted that his department's submissions aim to enhance the competitiveness of Kenya's agricultural sector through tax reviews.

PS Ronoh noted that agriculture contributes 21% of Kenya's GDP and employs over 40% of the population, underscoring the vital need for continuous producer incentives. 

Noting that government subsidy programs are designed to reduce production costs for farmers, he pointed out that recent changes in the VAT Act (December 2024) reclassified many zero-rated products to exempt status, impacting manufacturers' ability to reclaim VAT.

PS Ronoh advocated for amendments to the Bill, explaining that since agricultural inputs are either standard-rated (16%) or exempt, manufacturers cannot claim supply-related taxes. 

“This burden will then be transferred to farmers, ultimately affecting product competitiveness”, he explained. 
He also informed the Committee that changing inputs and raw materials for pest control products from zero-rated to exempt VAT status would increase local production costs. 

"Hon. Chair, this could potentially lead to an influx of illegal or counterfeit products and contribute to unemployment”, he submitted.

The Finance Bill 2025, under Clause 36, introduces tax exemptions for inputs used in animal feed manufacture, the transportation of sugarcane, and packaging materials for tea and coffee. Conversely, Clause 37 proposes removing sugar transportation from farms to mills from its current zero-rated tax status.

PS Ronoh further championed exempt status for fertilizers, micro nutrients, foliar feeds, and bio-stimulants, arguing that this would make them more affordable, thereby promoting productivity, soil health, and sustainability. 

He urged the Committee to move the provisions of Clause 36 (animal feed inputs, sugarcane transportation, tea and coffee packaging materials) to Clause 37 (Zero-Rated Tax Part 1).

To boost local consumption and encourage value addition, PS Honor urged the reclassification of tea as a food item and its zero-rating from VAT. 

He pushed for an increase in import duty for bulk and packed tea imports from 25% to 100%, or the introduction of an import levy on packed tea imports, and urged the Committee to review specific taxes and levies, including VAT, excise duty, import duty, (import declaration fee (IDF), and Railway Development levy (RDL), on locally consumed teas and packaging materials to spur tea value addition.

Committee Members, led by Chairperson Hon. Kuria Kimani, expressed their stance on value addition. 

The lawmakers emphasized the need to incentivize farmers to add value to their products before export. Hon. Kimani stated.

"We should seek to have the Finance Bill do more than prescribe a framework for revenue raising measures. We want to make it a policy decision to spur economic growth”, he remarked.

“As long as we continue to process our tea for export without any form of value addition, it will not be helpful to our farmers”, Hon. Kimani added.

The Committee also met with Kenya Revenue Authority officials, led by Deputy Commissioner Maurice Oray, to discuss various issues raised by the public during the recent public participation exercise on both Bills.

A key point of clarification was whether the proposed gratuity gains tax relief applies only to those under public pension schemes, and what measures are needed to prevent entities from paying salaries as gratuity to avoid taxation. 

In response, Mr. Oray noted that the provision aims to level the field for all retirement benefits, including pension and gratuity thus empowering employees to keep more of their hard earned money for a secure future.
Committee Members also voiced concerns from taxpayers regarding the uncertainty in taxation, citing instances where tax provisions are proposed for change just a year after enactment without proper analysis of their effects, leading to an unpredictable tax regime.

Additionally, Members raised concerns about Clause 52, which seeks to amend the Tax Procedures Act to grant data access to the KRA to enhance tax enforcement.

 “While it is important to enhance tax compliance, this provision would be in breach of Article 31 of the Kenyan Constitution, which guarantees the right to privacy for all individuals, could be open to abuse”, Hon. (Dr.) John Ariko (Turkana South) noted.

The Committee also urged KRA to adopt an analysis-driven reclassification process when determining what to move from zero-rated status to exempt, aiming to create a predictable business environment.

 "Lack of certainty particularly regarding reclassification from zero-rating to exempt status is causing a lot of anxiety to tax payers”, Hon. Joseph Oyula (Butula) observed.
 
The Committee which is also scheduled to engage the National Treasury and the Ministry of Trade and industry has already retreated to write its report, which is expected to be tabled in the House later in the week.